Mr. Paul Antoniadis reports

GOOD NATURED PRODUCTS INC. ANNOUNCES SECOND QUARTER 2023 RESULTS

Good Natured Products Inc. has released its financial results for the three months ended June 30, 2023 (Q2 2023).

Q2 2023 highlights:

• Revenue of $18.3-million compared with $25.5-million for the three months ended June 30, 2022 (Q2 2022), and $20.3-million for the three months ended March 31, 2023 (Q1 2023);
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $100,000 compared with $1-million in Q2 2022 and $700,000 in Q1 2023;
• Variable gross margin of 37 per cent compared with 33 per cent in Q2 2022 and 38 per cent in Q1 2023;
• Selling, general and administrative expenses of $3.7-million compared with $4.6-million in Q2 2022 and $3.8-million in Q1 2023;
• Cash generated by operating activities was $100,000 for the six months ended June 30, 2023 (H1 2023), compared with $1.4-million for the six months ended June 30, 2022 (H1 2022);
• Ending cash balance of $13.2-million compared with $11.9-million at Dec. 31, 2022.

The company's packaging business group delivered 83-per-cent year-over-year revenue growth largely due to the addition of new customers, cross-selling new products to existing customers and the acquisition of Houston-based FormTex Plastics in July, 2022. Revenue declines were largely driven by lower third party sales in the company's industrial business group as a result of industry-wide declines in average selling prices, continued customer destocking, soft demand coupled with increased competitive pressure for commodity petroleum-based products and an overall sector shift to just-in-time ordering.

"We keenly recognize the challenge for our business and stakeholders to cycle through reductions in quarterly revenue as we've navigated considerable macroeconomic volatility and supply chain normalization that we first identified in Q3 2022. Our outlook remains very positive about the continued strong growth in our packaging business group, and our robust pipeline continues to perform with several new packaging deals expected to enter commercial production in the back half of the third quarter," stated Paul Antoniadis, chief executive officer of Good Natured. "We also anticipate third party industrial sales to show signs of improving later this year and continue to pro-actively lower our SG&A spend through cost reduction initiatives, while we also look for ways to restructure and renegotiate our long-term debt."

Q2 2023 financial overview

Revenue for Q2 2023 decreased 28 per cent to $18.3-million as compared with $25.5-million for Q2 2022. The packaging business group realized year-over-year revenue growth of 83 per cent driven by organic growth as well as contribution from the FormTex acquisition completed in July, 2022. This was offset by a year-over-year reduction in industrial business group revenue.

Variable gross margin1 for Q2 2023 increased to 37 per cent compared with 33 per cent for Q2 2022. The increase in variable gross margin reflects the higher mix of revenue from the packaging business group and productivity enhancements in the variable cost of products. Gross margin for Q2 2023 and Q2 2022 was 26 per cent.

Selling, general and administrative expenses (SG&A) in Q2 2023 decreased by 19 per cent compared with Q2 2022. The decrease in SG&A expenses reflects the company's efforts to reduce costs through a year-over-year head count reduction of 31 people, renegotiating terms across the company's service providers and suppliers, and through process improvements designed to take out costs and/or improve productivity. The decline in SG&A was partially offset by the incremental head count and SG&A associated with the July, 2022, acquisition of FormTex. Excluding SG&A expenses associated with the FormTex acquisition, Q2 2023 SG&A, excluding acquisition activity and one-time charges, declined 22 per cent on a year-over-year basis. On an annualized basis, Q2 2023 SG&A totalled $14.9-million as compared with $17.9-million in the 2022 fiscal year, representing $3-million in run-rate cost savings.

The company's adjusted EBITDA for Q2 2023 was $100,000 compared with $1-million in Q2 2022. The decline in adjusted EBITDA in Q2 2023 and H1 2023 reflects the decline in revenue and gross profit dollars, which were not fully offset by the decline in SG&A, and specifically fulfilment and logistics costs.

The company incurred a net loss of $3.6-million in Q2 2023 compared with a net loss of $3-million in Q2 2022.

Cash flow and balance sheet overview

The company strengthened its liquidity with the completion of a brokered private placement with net proceeds of $4.4-million in June, 2023, as well as reducing its long-term debt by $1.5-million at June 30, 2023, compared with Dec. 31, 2022. Cash flow generated by operating activities for H1 2023 was $100,000 compared with $1.4-million in H1 2022. Cash use by investing activities in H1 2023 was $1.4-million compared with $3.3-million in H1 2022. As at June 30, 2023, net working capital was $9.2-million compared with $10-million as at Dec. 31, 2022.

The company continues to focus on ways to restructure and renegotiate its long-term debt obligations. During the quarter, the company successfully renegotiated a June, 2023, payment of $500,000 due to the government of Canada's Western Innovation Initiative program (WINN) into monthly instalments to be paid over a 24-month period. The company also intends to relocate its coating and warehousing operations at a leased location adjacent to its Ayr facility by the end of the fiscal year, which is expected to reduce its long-term lease obligations by $700,000 and reduce operating expenses by approximately $200,000.

As at June 30, 2023, the company's total asset to liability ratio was 1.21 compared with 1.22 as at Dec. 31, 2022.

The company's Q2 2023 financial statements and management's discussion and analysis are available on SEDAR+ and on the company's investor website.

Q2 2023 results conference call

The company will hold a conference call to discuss its financial results for Q2 2023, hosted by Mr. Antoniadis, executive chair and CEO, and Kerry Biggs, chief financial officer, on Aug. 29, 2023, at 11 a.m. Eastern Time/8 a.m. Pacific Time.

Date: Aug. 29, 2023

Time: 11 a.m. ET/8 a.m. PT

Toll-free: 1-888-396-8049

International: 1-416-764-8646

Conference ID: 18517762

Participants are asked to dial in 10 minutes prior to the start of the call.

A replay of the call will be available approximately two hours after its completion through to Sept. 12, 2023. The replay will be available by dialling 1-877-674-7070 or 1-416-764-8692 and by using the passcode 517762.

About Good Natured Products Inc.

Good Natured is passionately pursuing its goal of becoming North America's leading Earth-friendly product company by offering the broadest assortment of plant-based products made from rapidly renewable resources instead of fossil fuels. The company is focused on making it easy and affordable for business owners and consumers to shift away from petroleum to better everyday products that use more renewable materials, less fossil fuel and no chemicals of concern.

We seek Safe Harbor.